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SECU shows how its underwriting avoids mortgage headaches
RALEIGH, N.C. (3/22/12)--State Employees' CU (SECU) of Raleigh, N.C., is showing what good underwriting on mortgage loans can do: it has had no mortgage loan "handbacks" from government-sponsored enterprises (GSEs), and says less than 1% of its mortgages ever need force-placed insurance.

The $24 billion asset SECU has received no mortgages handed back from Fannie Mae and Freddie Mac due to poor underwriting in the past  10 years. That "gives new meaning to the phrase 'zero tolerance' in mortgage underwriting for the secondary market," it added.

SECU consistently uses "stellar underwriting practices and has historically originated and serviced all loans--in effect, 'eating its own cooking,'" the credit union said. It began offering first mortgage loans to members in 1953. Today it services more than 125,000 mortgages in the state with balances totaling more than $12 billion. Its charge-off rate is 0.25%, even in the fourth year of a recession in a state with more than 10% unemployment.

"SECU's low mortgage delinquency ratios have always been the best gauge for our organization to confirm the high quality underwriting by our financial services officers," said Spencer Scarboro, senior vice president of loan originations at SECU.  Its 60-day ratio is 2.04%.

The credit union noted that it sold fixed-rate loans on the secondary market to Fannie and Freddie, but a change in risk-based delivery pricing by the GSEs prompted it to discontinue those loans and go with 15- and 20-year portfolio fixed rates, and its adjustable rate mortgages.

Force-placed insurance will be subject to new rules issued by the Consumer Financial Protection Bureau in the coming year. SEC said not only does it have less than 1% of mortgages requiring the insurance, but also only 0.60% of  its mortgages require force-placed insurance for more than 60 days.

"These low percentages are the direct product of several practices at SEC, including mandatory escrow requirements, with interest earned by the member on the escrow account; direct contact with members upon initial coverage cancellation, and its ongoing Mortgage Assistance Program," said SECU.

SECU agrees with CFPB's need to propose a regulation that would prevent servicers from charging for force-placed insurance products unless there is a "reasonable basis to believe that borrowers have failed to maintain their own insurance."  The credit union works with members to avoid needing force-placed insurance.  Its loan servicing staff track insurance through escrow system and contact the member if there's an insurance cancellation. Members get notification two to four weeks before the cancellation date so there is time to pursue a resolution.

When the cancellation date is reach, the member has another opportunity to resolve the issue before placing force-placed coverage, with SECU staff reaching out to provide quotes for traditional insurance. The average traditional insurance cost for members is 43.5 cents per $100, compared with a force-placed premium of 85 cents per $100. The industry cost for force-placed insurance can be up to 10 times the cost for traditional insurance, said SECU.

"The ultimate goal for us as a financial cooperative is to avoid any lender-placed insurance and help members budget for the annual cost of homeowners insurance through a required escrow account," said Mark Coburn, senior vice president of loan servicing at SECU.  "With SECU paying interest on these escrowed funds, the budgeting process is a win-win for members. SECU will never utilize lender-placed insurance as an initial reaction to a member's insurance cancellation dilemma--it's just not the right thing to do," he added.


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